General Education

How to Put Financial Aid to Work for You

So you're ready to tackle the college application process: You're carefully researching schools, visiting campuses, and fine-tuning a shining college app. But before you pat yourself on the back, have you considered one of the most important details of all? How are you going to pay for school? Before you have a panic attack, take a deep breath and read on to learn about the many avenues of financial aid.

Start with the FAFSA

If you realize that you're going to need help paying for college, the process begins with the Free Application for Federal Student Aid, or FAFSA, application. This application can be filled out online or on paper, and can be submitted any time after Jan. 1 of your application year. The info that you and your family provide in the FAFSA is used to calculate your Expected Family Contribution, or EFC, which indicates your ability to pay for one year of college. Once you submit the FAFSA, it takes about six to eight weeks to receive your EFC.

When you complete the FAFSA, you provide a list of schools that you are applying to, and your EFC will be reported to them. These schools will then compare your EFC with their annual cost of attendance. For example, if your EFC is $15,000 and the annual cost of attendance is $30,000, then you are eligible to receive the difference in need-based financial aid, such as federal grants and loans. If your EFC is more than the cost of attendance, for example $35,000 for the same $30,000 school, your aid will probably be limited to aid that is not need-based, such as scholarships and private loans.

Breaking it down: Federal student loans

Once you've completed the FAFSA and been accepted to a college, the school will send you an award letter with a financial aid package (packages vary depending on the school). Often, the package will be a combination of various types of loans, grants, and even scholarships depending on need, merit, etc.

Most loans that are awarded based on financial need are low-interest loans sponsored by the federal government. The government subsidizes many of these loans, so no interest accrues until you begin repayment after you graduate. Here's a breakdown of federal loans:

1. Federal Stafford Loan:

The Federal Stafford Loan is a low-cost borrowing option for students. There are two types of Stafford loans: subsidized (you repay only the amount of the loan, while the government pays the interest it accrues while you're in school) and unsubsidized (you are responsible for repaying the amount of the loan and the interest it accrues while in school, although you can defer payment until after graduation).

To receive a subsidized Stafford Loan, you must be able to demonstrate financial need. The interest rate for a subsidized Stafford Loan for 2011-2012 is 3.9 percent while the rate for an unsubsidized loan is 6.8 percent (this is for an undergraduate loan; the rate for graduate loans is 6.8 percent across the board). The amount of the loan depends on whether you're considered dependent or independent. Check out the U.S. Department of Education's website for more information on loan limits.

2. Federal PerkinsLoan:

The Federal Perkins loan is intended for students who demonstrate extreme financial hardship. The loan is a low-interest (5 percent) loan and is made through your school's financial aid office. Your school will be your lender and the loan is made with government funds. Instead of paying the government back, you repay your school.

As an undergraduate you can borrow up to $5,500 for each year of study with the total you can borrow as an undergraduate being $27,500. For graduates, the numbers are $8,000/year and $60,000 total, but this also includes the amounts borrowed as an undergraduate. The amount you receive per year is not only based on your financial hardship, but also on the level of funding at your school.

3. Federal PLUS Loan:

The federal PLUS loan is for parents of dependent students. In addition to filing a FAFSA form, parent applicants must pass a credit check and fulfill certain eligibility requirements (visit the U.S. Department of Education website for complete list). The PLUS loan carries the low, fixed rate of 7.9 percent interest. The PLUS loan allows parents to borrow the student's annual cost of attending a school, minus any other financial aid the student receives.

Private Loans

If you don't qualify for federal financial aid, don't despair; you can still apply for private loans for college. Private loans are loans that are not through the federal government, but ones you receive through private credit unions, banks, etc. Private loans are typically given directly to students, but include a higher interest rate than federal loans, so the amount you want to borrow may impact how many lender choices you have. Another important thing to know is that just because you've been approved for a loan one year, doesn't mean that you will be the next.

Other Options: Grants, Scholarships, and Work-Study

The best financial aid to receive comes in the form of grants and scholarships because you don't have to pay them back after graduation. When you complete the FAFSA, you are automatically in the running for any federal grants and scholarships. The most well-known of these is the Federal Pell Grant, which is granted based on financial hardship has a maximum award amount for 2011-2012 of $5,550.

Usually a grant is considered money given due to need, while a scholarship is money given based on merit or other eligibility (such as area of interest, GPA, etc.). There are numerous scholarships available, and a great place to start is your school's financial aid office or the U.S. Department of Education's website.

Another option that is unique is a work-study program at your school. This federal program provides you with part-time employment on campus to give you work experience while also helping you meet your financial needs. It's a great way to earn money for college while getting involved in your campus community.